Financial institutions should receive sufficient current
information from TSPs to perform due diligence and, at least
annually, ongoing monitoring. Publicly held TSPs have mandatory
financial reporting obligations, which facilitate obtaining
financial information. Where mandatory reporting requirements do
not exist, such as in the case of privately held TSPs, institutions
should obtain contractual assurances that the TSP will provide
financial statements (preferably independently audited) at least
annually.

Bankruptcy of a TSP can have a devastating impact on a serviced
institution. Under such circumstances, the TSP may not be able to
provide a 60- to 120-day notification of service termination. In
this situation, the serviced institution, not the TSP, would need
to find an alternate processing site. Although the user
institutions retain ownership to data and should be able to obtain
current data files from their TSP, the TSP typically owns the
programs and documentation required to process those files. Without
specific contract provisions, the TSP may not be willing to make
the programs available to the users. These programs are often one
of the TSP's significant assets. Therefore, a creditor, in an
attempt to recover outstanding debts, might attach a lien to those
assets that will limit the availability of the programs to the
users. At this point, the serviced institutions could: (1) pay off
the creditor and hire outside specialists to operate the center,
(2) convert data files to another servicer, or (3) purchase
equipment, license software and begin processing in-house. All of
these options are costly and can cause unacceptable processing
delays.

TSPs suffering financial deterioration should communicate with
customers, seek additional sources of capital, or develop capital
plans to alleviate customer concerns as quickly as possible. If a
TSP fails to provide proper financial data, the institution should
evaluate the significance of the services to the institution and
determine whether a lack of information about the financial
stability of the company should stop it from entering into a
contract or from continuing a contractual relationship.